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The Price Is Right?

Logically, e-textbooks should be much cheaper than the print options available to students--but they're not. CT looks at the rationale behind their pricing, and the market factors at play.

By Dian Schaffhauser

04/01/12

"The cost of textbooks ranks at the top of the list of undergraduate 'gripes.'" --The Cornell Daily Sun

"Doing the required reading will hurt more than ever this year. Textbook prices…have been rising at an alarming rate." --The Harvard Crimson

Such sentiments surface in student newspapers and on social networking sites regularly. And, apparently, they're nothing new. The Cornell University (NY) quote, for instance, was published in 1934; the Harvard University (MA) quote came out 20 years ago.

There's something about textbook prices that generates outrage in ways that other college expenses, such as housing and technology fees, don't. Maybe it's the shock felt by new students when faced with a $900 bill after getting their textbooks for free in K-12. Maybe it's the awful realization that $40,000 in tuition and board doesn't even cover learning materials.

Many educators--as well as the feds and plenty of state governments--believe that the solution to high textbook costs lies with a shift to digital content. After all, if you eliminate the printing, the trucking, the warehousing, and all the other hassles related to physical inventory, you're left with only the writing, production, development, and marketing. Surely that will bring down the prices students have to pay for curriculum?

But if that were true, why hasn't the digital-content pilot at Florida's Daytona State College shown far greater savings? According to a report by the pilot's researchers, "during three of the project's four semesters, students enrolled in some of the e-text pilot sections paid only $1 less for rental of their e-texts than students who bought a printed book, due to publisher pricing decisions." Worse, these students couldn't sell their e-texts back to the campus bookstore like the owners of print books could, "which increased their disappointment."

Given these conflicting claims and beliefs, CT set out to discover the true cost of e-textbooks, what's driving the pricing, and how these costs compare to those of traditional print products.

Crunching the Numbers At first glance, e-texts do offer a significant discount over traditional print textbooks. An unscientific review of pricing on CourseSmart, an e-textbook clearinghouse, indicates that e-texts on average sell for 50 to 60 percent of the cost of equivalent new print textbooks. But discounts are dependent on the individual title and the area of study. Architecture e-texts, for example, are often as much as 70 percent of the cost of the new print textbook, while many law e-texts cost 40 percent of the print edition.

In considering these numbers, though, it's important to understand that a digital textbook is essentially a rental--students cannot sell their copies once they're finished with them. Instead, students pay to license the text for a certain amount of time, usually 180 or 360 days.

So what happens to the cost calculation when you factor in buyback of print textbooks? While a host of variables determines the ultimate resale value, students can probably expect to recoup 25 to 50 percent of the cost of the original new textbook. It's still cheaper to buy the digital edition, but the pricing difference is not nearly as extreme. And what of those students who buy secondhand textbooks from the get-go and then resell them at the end of the course? In many cases, their out-of-pocket costs might be less than for the digital version.

To be fair, there are a lot of hassles and uncertainty associated with reselling textbooks. Securing a premium buyback rate of 50 percent, for example, is dependent on the school reusing that specific title and edition in its courses and the book being unmarked by notes and highlighting.

"Students who mark up their books may not get anything back," notes Jill Ambrose, chief marketing officer of CourseSmart. "You don't know until the end of the semester if you're going to get a buyback. We always say there are a few lucky students who might be able to get that [50 percent], but, for the most part, the majority of students aren't going to. We know we can guarantee savings with the digital."

But some universities, including the University of California, Riverside, are eliminating the buyback guesswork by instituting their own textbook-rental programs. According to UCR, its rental program can save students as much as 54 percent off the purchase price of a new book.

Furthermore, print textbooks don't carry any peripheral costs, unlike e-texts. To purchase a suitable e-reader, such as an iPad or a 9.7-inch Kindle, students must part ways with another $380 to $500. Given that the average student spends about $900 per year on textbooks, this extra outlay, even amortized over several years, is nonetheless significant--and further erodes whatever savings students may garner by leasing e-texts.

Ultimately, whether a student can do better by leasing an e-text, renting a print copy, or buying a secondhand version depends on many factors, not least the specific title. Overall, though, e-texts cannot be considered a slam-dunk pricing winner.

Can E-Text Prices Be Justified? What makes the high cost of e-texts even more surprising is that students currently prefer the print product. Anecdotal stories about the difficulty of using e-readers for textbooks are common (see "Can Tech Transcend the Textbook?"), but pilot projects are now reporting similar results.

Starting this academic year, for example, Chattanooga State Community College (TN) began an e-text pilot program in conjunction with CourseSmart. Initially, students were given the choice of an e-textbook or a paper-based book for $15 more. Despite the extra cost, students chose the printed textbook, according to Kathy Long, who has been teaching history at the school for 24 years.

In an effort to make the pilot relevant, students were eventually required to use e-texts. When that happened, students complained about two issues, recalls Long. Students with visual disabilities had a hard time because the e-text could be magnified only so much, "and then they had to go to the adaptive computer labs." But the biggest gripe was that most students didn't own portable computing devices.

Problems with e-texts don't just stem from student resistance, however. There is a growing recognition that many schools are simply not ready for the transition. Daytona State's pilot started in 2009 with the intent of testing e-texts and then scaling campuswide.

In the ensuing two years, obstacles surfaced, including cases where instructors had customized their courses so much that the original e-texts were no longer relevant. In another situation, generic netbooks had to be substituted for e-readers because the course textbooks weren't available in the Kindle format. Technical snafus included wireless-access problems due to classroom overload; programming bugs on publisher websites; and sorting out just who--instructors, IT, or the publishing company--was responsible for teaching students how to use the various tools and resources.

In evaluating student adoption of e-texts, it's also important to remember that e-texts are, for the most part, souped-up PDFs. While CourseSmart's Bookshelf platform allows students to annotate and highlight text, and digital publisher Kno's platform provides some basic multimedia, e-texts are essentially the same as the print product. There is no significant step up in functionality.

All of these factors may help explain the anemic growth in the e-textbook market. According to research firm Next is Now, digital texts represented only 3 percent of textbook sales in 2011. Considering sales of consumer e-titles on Amazon last Christmas actually outstripped those of print books, the e-text market appears to be seriously lagging.

Prisoners of Print Given such lukewarm performance, what is keeping e-text pricing so high? In a situation like this, shouldn't publishers drop their prices to make the platform more appealing? Unfortunately, e-textbooks are caught in a kind of industry limbo, and prices are unlikely to change until a variety of market factors shake out. In a nutshell, the pricing of e-textbooks is being held hostage to the print business model.

Indeed, the biggest factor affecting e-text pricing has nothing to do with digital media at all. Instead, it revolves around the resale market for print textbooks. David Straus, vice president of products for Kno, believes university 100- to 200-level survey textbooks (for subjects such as biology, chemistry, and calculus) offer an excellent example of how the resale market is warping the industry.

"These books have to be priced by publishers with the knowledge that they will sell the book once," he explains, "and then the book will be resold anywhere from four to six more times through the used and rental market," with the publisher netting nothing from the resale activity. As a result, publishers front-load the cost of new books in an attempt to offset the lack of income from pass-on usage.

It's also one reason why publishers release revised editions of their textbooks so frequently. By coming out with new-and-improved versions, publishers hope to undercut the resale value of previous editions, even as they raise prices for the new edition.

According to "Exposing the Textbook Industry," a report by Student PIRGs, seven out of 10 professors surveyed said that new editions of textbooks in their field are justified only sometimes or rarely. As the report pointed out, "since new editions are on average 12 percent more expensive than the previous edition, students are spending a lot of money for little educational gain."

You would think that this inherent flaw in the print model would have textbook publishers flocking to digital in droves. After all, the advantage of the digital model for publishers is that it treats a book like software. "Each time that digital book is sold, the publisher will generate income," Straus points out. "In that model, the publisher no longer needs to price the first sale of that book higher." As a result, Straus predicts that at some point the price for digital versions of these survey-type texts will drop from their current levels.

But don't hold your breath waiting for it to happen. According to Straus, even if publishers decided that a $100 printed book could be sold for $30 in digital form, they won't take the plunge. The fear is that people will look at the new paper textbook and say, "Why are you charging $100 for the physical book and $30 for digital?"

"Until the market begins to balance more with a digital model, they can't just drop the prices so dramatically," explains Straus. "They're still producing a lot of physical books, and those physical books are still impacted by the used and rental market."

Even so, Straus believes this year and next will be pivotal for the transition to digital textbooks. "Across the board--publishers, technology companies, the institutions--there's more energy on this than there was two or three years ago," he says. "I think everything is set up for success."

The Paradigm Shift But is that optimism really justified? As long as e-texts are essentially digital copies of print products, the same economic factors remain in play. It seems more likely that the pricing link between e-texts and print will be broken only when e-texts actually evolve into a completely different product--dynamic, multimedia learning tools that take full advantage of the technical features of the devices on which they operate. At that point, prices for traditional textbooks--whether print or digital--will probably collapse.

Inkling is a new breed of publisher that is creating multimedia e-titles that represent a true departure from the old print model. With fewer than 150 e-titles, however, it is not large enough yet to move the market, especially when you consider that Kno claims 150,000 e-titles in its catalog and CourseSmart offers 20,000 digital titles from 30 publishers. The transition to feature-rich e-titles is inevitable, though, and publishers are positioning themselves accordingly. Inkling's list of investors includes many of the same publishers that are covering their bets short-term with digital replicas of textbooks.

When the bottom does eventually drop out of the market for print textbooks and their PDF equivalents, what can educators and students expect price-wise from the new style of dynamic e-learning materials? A review of Inkling's current catalog suggests that students shouldn't expect a windfall there, either: Strikingly, the price of Inkling's e-titles is very similar to that of the digitized textbooks on CourseSmart.

Like any e-text publisher, Inkling does not have to contend with costs such as warehousing, shipping, printing, and paper. However, it does have to absorb higher development costs, including programming, video, and other multimedia. Creating such resource-rich materials is not cheap. Furthermore, it's likely that users will develop higher expectations for the freshness of e-content, leading to constant updating costs. In an economics e-title, for example, users may expect to see the latest data from the Bureau of Labor Statistics, rather than a snapshot from a year ago.

Even so, it's probably too early to gauge future pricing based on current levels. Inkling is a small player, so it's impossible to know what effect economies of scale might have on the business model.

Even if prices don't fall from their current levels, faculty do have one reason to be optimistic. Under the Inkling model at least, students can buy a single chapter of a title (usually $5 to $10), rather than having to shell out for the entire product. For faculty who like to jump from one source to another, this pricing approach makes it possible to assemble a list of study materials that doesn't break the bank.

Regardless of the format, however, publishers are unlikely to lower their prices out of the goodness of their hearts. They are businesses, not nonprofits. Indeed, the biggest brake on the high cost of learning materials might come from outside the publishing world--competition offered by open education resources (OERs).

The OER approach certainly appeals to Long at Chattanooga State. For the last five or six years, she has used no textbooks in her American history courses, preferring to use materials freely available on the web. In fact, she was irked when she was required to use an e-textbook in her geography class as part of the CourseSmart pilot. Although she enhanced the course with her own notes, she would have preferred to teach it without a core text. "There is so much in geography already out there on the web, why would I need a book?" she asks. "And yet I'm required to have it."

At its core, higher education is powered by faculty and administrators who, like Long, are motivated by teaching and learning, not the money. The internet has now made it possible for these educators to share their work outside the framework of conventional publishers. And the availability of easy-to-use publishing tools makes it possible for them to create educational materials that are as compelling as anything put out by major publishers.

Are there enough talented and motivated DIY faculty like Long to actually upend the economics of the textbook market? Not likely. The time and money that publishers invest in quality control alone--fact-checking, content-bias vetting, securing permissions, editing, and proofreading--are beyond the resources of the average college faculty member.

So what does the futures market for course materials look like? Unfortunately, students probably won't pay significantly less. Over time, however, they may well get a bigger bang for their buck. Think of the Macintosh computer--the cost per unit has not come down over the years relative to the actual cost of producing it, but the consumer gets a much more powerful and productive tool.

Students themselves may push publishers toward this outcome. After all, they have shown quite conclusively they will not spend their money on glorified replicas of their existing textbooks. If publishers want to stop printing, storing, and shipping expensive print books, they are going to have to build digital products that students find truly worth the cost.